Thursday, June 24, 2010

The Subprime Student Lending Bomb

The short-seller, Steve Eisman of FrontPoint Partners, is perhaps best known as being immortalized in Michael Lewis’ book, “The Big Short: Inside the Doomsday Machine,” as having warned about the sub-prime mortgage mess when nobody cared. He is scheduled to testify today in front ot the Senate Committee on Health, Education, Labor and Pensions.

Eisman has recently noted:

“Until recently, I thought that there would never again be an opportunity to be involved with an industry as socially destructive as the subprime mortgage industry. I was wrong. The for-profit education industry has proven equal to the task.”

With Title IV student loans, “the government, the students and the taxpayers bear all the risk and the for-profit industry reaps all of the rewards.”

“We have every expectation the industry’s default rates are about to explode.”

59 comments:

I hope more people listen to him this time around, because we are in for a student loan default tsunami.

And it ain't just the folks who get suckered into University of Phoenix online....there will be a big old wave of defaults from the so-called "non-profit" schools very soon, with unemployed attorneys most likely being chief among them.

Of course, the "educators" love the current sick system of soaking it to the taxpayers and on the educated young workforce:

http://www.utahsright.com/salaries.php?city=u_of_u&query=chodosh

For instance, dean at the law school at the University of Utah, mad $388,545 in his official position as “SR VP, Academic Affairs – Oper”!!! The school is ranked as the 42nd bestest, most fantastic law school in the United States by USN&WR. It is located in a city with a reasonable standard of living.

Their response to my email, where they informed me that this was an “inadvertent error” on their part. OF COURSE IT WAS!! What else would cause such a great disparity between the published numbers and the real figures?!?!

I wrote this on March 12, 2010, in the post "why I chose to label my blog suprimeJD"

Ill close it off with this: if the law schools were the "mortgage companies" that conned us into going into heaps of nondischargeable debt, then we can effectively short these companies. As many of you know, a large amount of these Tier 4 law schools are private. Also, many of them went into debt themselves by issuing bonds. Many of these bonds are rated BBB+ which is one grade above investment grade. Hopefully some wiseguy finance person can come up with some conduit where we can short (short meaning bet against) the hell out of these bonds. Because when the law school bubble pops and the bottom 30-50 law schools file for ch 11 bankruptcy their bonds will go kaboom. Surely there must be some CDS on these bonds.

I agree. For the past 2 years, this country has been trapped in neutral. The corporate and governmental elite are doing just fine, but everyone else is just stagnating or tumbling into poverty. Obama is a failure. This economy needs a major click of the reset button. Limping along, handing out unemployment and housing buyer tax credits and more student loan money is merely delaying the inevitable. The sooner these institutions (most notably the higher education complex) implode, the better.

I blame old people, like the prick that apologized to BP. Fuck old people. Just get out. Honestly, you know, in my days researching English as a second language schools to get the fuck out of Dodge, you know how they interview? Skype. Why? Because they're not run by inefficient, past-their-due-date functional idiots. Really. We're screwed. From top to bottom and bottom to top. Everywhere else it takes a million years to apply for a damn job. They all have their own on-line fill-in forms where you have to reproduce your whole life. Louis Black says: I ALREADY HAVE MY FUCKING RESUME RIGHT HERE! Really, look, e-mail address. Skype interview. Get on with it. It's emblematic really. This is how our entire government is run.

We just don't get it. As a country. Just look at Congress. Anyone look, like, let's say under 55? Nope. And those people. Jesus. Their grandkids probably have to help them with checking their electronic mail.

Paradoxically, the government's involvement in student loans has led directly to the explosion in tuition rates. College and law school are now more unafforable than ever before...despite the givernment being more involved than ever before.

The old mantra that "nobody should be denied a college education because they don't have the money to pay for it," has lead to action by the government and some uninteneded (or the cynical might say intended) results.

To give you an anecdote, my father in law told me that in 1970, him and his buddies could work for the summer and have enough money in the bank to pay for the entire next year's tuition for a state college!! Fast forward 40 years and there is no chance you could do that.

If the government got out and bankruptcy protection was restored...tuition would plummet and lenders would be more careful who they lend money to.

Unemployment deferments are suspended? Haha, okay, that means that I will either IBR or default.

I have no intention of paying back anything. I'll move to Mexico before I become the student loan companies' bitch.

Good thing I know how to handle a weapon and have hand to hand combat training, I am going to beg the loan collectors to come find me and then beat the everlasting piss out of them. I would suggest everyone learn how to handle weapons and learns at least basic boxing/grappling.

I think there's some left-right agreement on this. The government guarantee, in combination with private lenders, such as Sallie Mae, the whore, is the problem. We can argue ideologically over whether the government should be involved, but as far as I'm concerned, in comparison to what we had until the healthcare bill was passed, either direct government lending or outright privatization would have been an improvement. What you can't do is privatize AND give a government guarantee. That's just stupid. Then you have a profit-driven company with no risk. Whose idea was that?

You know, if there were a quarter of the jobs out there waiting for these people after they graduate from these schools, as the number of people actually graduating, things would be hunky-dory and it wouldn't be a scandal.

The problem is that American corporations have been busy outsourcing our entire jobs base for the past 20 years, and all the horse shit in the world about "going back to school", "jobs training", "acquiring new skills to compete in the global workforce", etc. doesn't amount to a hill of dog manure if there ain't no jobs out there to be had... whether you're talking about manufacturing, call centers, engineering, industrial design, OR law...

Republicans on Thursday defeated Democrats' showcase election-year jobs bill, including an extension of weekly unemployment benefits for millions of people out of work more than six months.

The 57-41 vote fell three votes short of the 60 required to crack a GOP filibuster, delivering a major blow to President Barack Obama and Democrats facing big losses of House and Senate seats in the fall election.

The rejected bill would have provided $16 billion in new aid to states, preserving the jobs of thousands of state and local government workers and providing what White House officials called an insurance policy against a double-dip recession. It included dozens of tax breaks sought by business lobbyists and tax increases on domestically produced oil and on investment fund managers.

White House press secretary Robert Gibbs accused Republicans of blocking a commonsense economic package aimed at helping Americans suffering in the recession. "The president has been clear: Americans should not fall victim to Republican obstruction at a time of great economic challenge for our nation's families," Gibbs said in a statement. "The president will continue to press Congress to pass this bill and bring this relief that's critical to our economic recovery."

The demise of the bill means that unemployment benefits will phase out for more than 200,000 people a week. Governors who had been counting on federal aid will now have to consider a fresh round of budget cuts, tax hikes and layoffs of state workers.

"This is a bill that would remedy serious challenges that American families face as a result of this Great Recession," said Sen. Max Baucus, D-Mont., the chief author of the bill. "This is a bill that works to build a stronger economy. This is a bill to put Americans back to work."

The bill had been sharply pared back after weeks of negotiations with GOP moderates Olympia Snowe and Susan Collins of Maine. The most recent version, unveiled Wednesday night, contained new cuts to food stamps and scaled back the state aid provision to allow Democrats to claim the measure was fully paid for except for the unemployment insurance extension.

E-mail the White House and urge Obama to sign an executive order to extend the unemployment benefit extensions. Where the hell is he? He is looking so weak. I think we made a mistake by not picking Hillary. At least the woman has balls.

How about this mouthpiece Harris Miller, president of the Career College Association?! We Should bombard this asshole with emails voicing our opposition. Read what he had to say about Eisman (in the CNBC article). Who is more self-interested than Miller. What a fucking scumbag. Thinking about this guy makes me want to step on the back of his head while his mouth is open on a curb.

That is why I have been urging people here to actually get some Hillary Clinton style balls and DO something. If you don't get out in front of these banks when they come begging, they'll get theirs, and we'll get fucked. That's what happened with homeowners, now isn't it. The mortgages turned upside down, the banks shit their collective britches; then they went and cried to rich Uncle Sammy, who counted out a few nice crisp 100's for them. But what did the banks do then? Well, then, they just kept right on sticking it to the homeowners who needed help just as badly and (for at least some of them) were deceived into thinking buying the home was a good idea in the first place. What did the little guy get? Nothing.

Unless your voice is heard - somehow - you get nothing. If it is heard (and heard loudly), though, you might get some relief. If you can expose the whole rotten system, the banks come crawling under very different conditions. They come - hat in hand - to ask us to get them out of a BP-style jam that is inexcusable and that is seen to be of their own creation. If you just dither away the time on the interwebs, they come with this message: "Default rates on student loans are very, very low. [That's a lie, if you do your research.] The economy tanked. No one saw it coming. Students can't get work. We don't know why. It's unfortunate. We need your help. Besides, you owe us. You just took away our billion-dollar industry with the stroke of a pen in some healthcare bill."

That's how you get the bankruptcy legislation changed. Either that, or that's how you get your delinquent or deferred loans sold to the federal government, which would then allow you to lobby for at least a change in the law whereby the government subsidizes the interest so that at least we don't end up with a forkful of fees and increased interest rates. I can pay back my principal balance whatever I do, wherever I work and however long my unemployment lasts. Most of us will be successful at some point. What will keep us from being successful is a loan balance that - because of fees and interest rate increases and court costs - runs faster than we do.

Legislation to extend unemployment subsidies for hundreds of thousands of Americans who have exhausted their jobless benefits teetered on the edge of collapse on Thursday, as Senate Democrats and Republicans traded bitter accusations about who was to blame for an eight-week impasse.

Senate Republicans and a lone Democrat, Ben Nelson of Nebraska, joined forces to filibuster the bill in a procedural vote on Thursday. Visibly frustrated, the majority leader, Harry Reid, Democrat of Nevada, said he would move on to other business next week because he saw little chance of winning over any Republican votes.

The vote was 57 to 41, with the Democrats falling three short of the 60 votes needed to advance the measure.

“You’ll hear a lot of excuses,” Mr. Reid said at a news conference. “The bottom line is the minority just said no.”

Trying to appeal to Republicans, Mr. Reid on Wednesday night introduced yet another version of the legislation, which also includes important tax changes. But even as he unveiled the new package, aides conceded he did not have the votes.

The Senate Republican leader, Mitch McConnell of Kentucky, has insisted that the bill not add to the deficit. Democrats argued that they had found ways to cover the entire cost of the $112 billion measure, with the exception of the $35.5 billion extension of unemployment benefits, which some Republicans said they could accept.

But some Republicans who had been negotiating with Mr. Reid said they remained opposed to tax increases in the bill, and Mr. McConnell insisted that Republicans would not support any increase in the deficit.

To dramatize the point, after blocking the Democrats’ bill, Mr. McConnell proposed a one-month extension of unemployment benefits and some other safety-net spending, to be paid for with about $10 billion in unspent money from last year’s economic stimulus program.

Democrats had already proposed using some stimulus money to help pay for the bill, and Mr. McConnell said he was simply endorsing the same idea.

“The only thing Republicans have opposed in this debate are job-killing taxes and adding to the national debt,” Mr. McConnell said. Anticipating that Democrats would reject his proposal, he added, “Their commitment to deficit spending trumps their desire to help the unemployed.”

The Obama administration has not fought aggressively for the legislation but the White House press secretary, Robert Gibbs, issued a statement chastising Republicans for opposing the bill.

“Republicans in the Senate obstructed a common-sense package that would save jobs, extend tax cuts for businesses and provide relief for American families,” Mr. Gibbs said, adding, “The president will continue to press Congress to pass this bill and bring this relief that’s critical to our economic recovery.”

All of this is far more complex than any one of the prior bloggers can effectively address in their extremely "substandard" comments, with the exception of 1-2 bloggers.

This country would be better served by beginning to emphasize to students the need for developing practice skills - not achieved by focusing on P.C. majors such as "Women's Studies", African-Studies, Sociology, or political theories now considered deadwood.

The only way things get turned around in this country is when we return to a true merit based academic and economic system, based on performance and competition, emphasing the need for individual accountability and responsibility, rather than victimization.

Merely because one is brought into the world, regardless of economic circumstances, privileges, race, or class guarantees one nothing, nor does it entitle one to anything.

the only way out of this mess is to cut govt spending on a massive scale. Obama's interventionist policies have been a massive failure. Nationaizing the student loan industry is a deeply flawed policy.

It is time to end these riduclous extensions of unemplpyment bennies and housing subsidies and foreclosure modifications. We have to have the day of reckoning in order to move forwward. More foreclosures loom and there is little or not chance of job creation under obama's failed policies.

In essence he just wants to keep borrowing in order to placate the masses while he rams his marxist policies and poorly conceived programs thru.

Time to wake up, stop putsourcing and create incentives to bring manufacturing back and reduce the influence of overreaching and corrupt unions.

I don't think there is a way to save the US, not as we know it. Greece, Rome and the UK all had far-flung, powerful, seemingly invincible empires but they all fell too. It happens. Eventually a civilization simply gets too big and corrupt to continue, and then it falls apart. It doesn't disappear, those nations all still exist, it just shrinks and becomes irrelevant.

China, India and probably the Middle East are just going to be the new superpower regions. We will all probably immigrate to those regions as well, and not pay back our student loans. We'll have to learn a new language too. It will happen, leave the rednecks to the US and get out while you can.

You don't india or china will alow talentless drains on society to immigrate do you? U.nlike our country which is flooded with illeterate; unskilled labor, they won't allow it. They already have enough people and want to protect their jobs.

Our country is far ahead of these places, but the gap is closing. You can go teach english maybe.

What's so sad is just how short-term the consumer's outlook has become because of the recent bubbles, in particular the real estate bubble. Some fool thinks, I'll buy this house and get it with this weird loan (and everyone's saying that I can just refinance or do some other shit like that if I don't like it anymore)...

And they have no idea...no idea about the consequences of signing their lives away. People like that can't even conceive of thinking differently about decisions around debt. No, they won't die, but it's as close to indentured servitude that anyone can VOLUNTARILY sign up for. It's symptomatic of the wham, bam, thank you maam mentality that has rotted America to the core. Get it now, pay for it later. And it's exactly idiots like that who will bend over for their lenders every month for a no-lube ass tearing. And that will go on for years.

Try immigrating and working in Europe as a non-citizen. Forget it. Even the Chinese, Koreans, and Japanese are cracking down on the waves of unemployed English teachers that are flooding the country. Only America allows unskilled, welfare sucking immigrants to flood the country and drive down wages. Enjoy not receiving your unemployment benefits while the politicians in Washington hand out food stamps and subsidized handouts to the illegals.

After joining with her fellow Republicans to block a bill that would have extended unemployment insurance, Senator Olympia J. Snowe of Maine urged Democrats on Friday to put forward a separate bill to help people who have exhausted their jobless benefits.

The legislation blocked by Republicans on Thursday includes both the $35.5 billion extension in unemployment insurance and a broad array of tax changes and other safety net spending. Republican leaders said they were opposed to some tax increases in the bill and also do not want the measure to add to the deficit. In response to Republican demands, Democrats have covered the cost of all of the $112 billion package except for the unemployment benefits.

In a letter to the Senate majority leader, Harry Reid, Democrat of Nevada, Ms. Snowe said that a separate bill would disentangle the unemployment benefits from the larger fight.

“Separating the unemployment insurance provisions of the extenders bill and passing it as emergency legislation acknowledges the urgency of helping those who continue to look for work,” Ms. Snowe wrote. “Unemployment checks inject money directly into the economy, invariably assisting in the economic recovery we all agree must be accelerated.”

The letter to Mr. Reid suggests that Ms. Snowe wants to be clear about her desire to assist the unemployed, despite her helping the Republican leadership block the bill. Mr. Reid, visibly frustrated on Thursday, said he would move on to other legislative business next week because he sees little hope in winning Republican support for the bill.

Ms. Snowe in her letter sought to demonstrate her concern about Americans who remain out of work. “The hundreds of thousands of unemployed Americans who are losing jobless benefits every week deserve our immediate attention, so I am writing today to urge you to bring a free-standing extension of unemployment insurance benefits to the Senate floor for a vote early next week,” she wrote. “As of today, more than 1.2 million people out of work for longer than six months are ineligible for the next tier of extended benefits, which were originally provided by the economic stimulus bill to fight the recession.”

Democrats, however, have said they made numerous concessions and substantially altered the bill, cutting its size by more than $100 billion, in a bid for Republican support.

The Senate Republican leader, Mitch McConnell of Kentucky, offered on Thursday to agree to a one-month extension of jobless benefits using unspent money from last year’s economic stimulus program. Democrats rejected that proposal.

Jim Manley, a spokesman for Mr. Reid, said that Ms. Snowe and her fellow Republicans were to blame for the stalled effort to extend unemployment benefits. “The fact is she sent the letter to the wrong person in the wrong party,” Mr. Manley said. “It was the Republicans who killed this urgently needed extension yesterday afternoon and nothing in this letter changes that fact.”

John Gentzel, a spokesman for Ms. Snowe, said that Democrats were holding the unemployment benefits hostage in their effort to pass a larger piece of legislation, and that they had not heeded Ms. Snowe’s advice weeks ago to deal with the jobless aid in a separate measure.

The gridlock over the jobs and tax bill is evidence of how the tense politics of a mid-term election year are beginning to slow the gears on Capitol Hill.

Wake up! Pelosi, Reid, and the DumboCrats DON'T really care about poor people. The extensions could have easily passed as a stand alone. The DumboCrats are using the unemployed as hostage holding pawns to pass loads of pork to enrich their union friends. Check out some of the obscene pensions that the DumboCrat supporting unions (esp in Cali.) are pulling down.

Excellent points by the posters saying immigration is very difficult to other countries. I'm no immigration expert but I have hear this as well. However, people do talk about expatriating so it must be possible.

Maybe if the US started closing its borders we'd have more of a real chance. But I don't see that happening. It's really amazing to me that the US is the only one that allows immigration to this extent. I could understand it maybe 50 years ago, but now I don't understand it in the least.

Failure and complete economic and social collapse of the US is now inevitable. Wall St was once a place where private capital was pooled/invested in worthwhile, concrete business ventures.

Today it's a bunch of 25 year olds fresh out of Wharton pushing an alphabet soup of nonsense shitpaper back and forth. The only ones making money are the "whale" investors like Buffett and the Wall St middlemen. The average schmuck has as much chance of making $$$ in the stock market as he does in Vegas. Yet the suckers keep coming, listening to clowns like Jim Cramer who tell them how to "diversify" and "strategize" with their pathetic 70 grand in their lame 401K. It's comical, really.

The student loan disaster is now imploding rapidly. A generation of people are 100 K+ in hock to the criminals at Sallie Mae, Access Group and the other goons. None of this $$$ is EVER getting paid back. I doubt they'll be able to ram thru another bailout with all the populist anger out there from the Gelnn Beck tea-party crew. Make no mistake, there is a dangerous powder-keg of violence out there and it wouldn't suprise me a bit to see some assassinations/domestic terror start taking place real soon.

The latest Job of the Week is a shout-out to all of you Consumer Finance Litigation folks. We are looking for you. The mortgage meltdown is creating quite a lot of work for litigators with consumer finance experience. We are seeing a number of opportunities nationally both at firms and companies.

Position: Consumer Finance Litigation Associate

Location: Dallas, TX

Description: Dallas office of an AmLaw 100 firm seeks a litigator with 5 -8 years of consumer finance experience, including experience with the Truth in Lending Act, RESPA, wrongful foreclosures, and mortgage servicing.

Just came across this blog today and I love it! I graduated in May and am studying for the July bar exam. I can't begin to explain how absolutely miserable I am right now. I am studying for this damn test, not working, have no job outlooks, won't get bar results back until October, won't get sworn in until the end of October, and yaaaayyyy my first private loan payment will be due the first of November...I believed the bullshit from my school counselors that everything would be okay, things would pan out, I was a good student, I worked hard, I have great references, but alas it was all a lie. I've been spending 4 hours everyday looking for legal jobs everywhere - coast to coast - tell me how I am supposed to payback $150,000 in loans on a legal aid salary of $37,000? My parents were public school teachers making less than that and only had about $30,000 combined in loans and I remember what life was like when I was growing up.. mac n cheese and hotdogs for dinner sucked big time. I guess that is what it will be for me because I chose to follow my dreams. Maybe we need to start teaching our children that dreams are only possible if you are born with a silver spoon in your mouth.

Now on to my loans... I took out my loans because 1) I didn't have parents who could pay for my schooling 2) I took out the least amount that I needed... I lived like a student.. I drive a 10 yr old VW Jetta that has 130K miles on it (I cross mt fingers every day that nothing breaks on it b/c I have no money to fix it), I live in my soon to be in-laws basement, I don't have cable, I don't even got to a gym because I can't afford the $29 a month membership.... life sucks.. I'm 28 yrs old, engaged, with no kids. I've put my life on hold and it looks like it is going to be on hold forever because I sold my soul to the devil.

I am conscientious about my credit and credit score. If there is one thing I've learned it's that you have to have good credit or you will be paying out the ass for the rest of your life. So I noticed something pretty fishy on my credit report one day... Since February 2010 one of my student loans has been sold 13 times! Each time it has been sold or traded or whatever it is called it gets put on my credit report. If you look at my credit report it would appear that I have almost 50 student loans now. Not all of them have balances of course, but do you know what this has inadvertently done to my credit score??!!!??? Some of you will argue that this will have no impact on a credit score.. it shouldn't, you are right.. but I've seen it with my own eyes...My credit score slowly drops every month. It just makes me want to vomit.

Next, I don't even know who owns some of my loans because they have been sold so many times. Funny that I'm studying commercial paper and secured trans for the bar exam today...

University of Phoenix (phonetics) has a law school and it looks like it was just accredited by the ABA (no joke) and acording to Nando at Third Tier Toilet, full time tuition for this rancid indigestible detritus of a loan scam for profit school is $62,000 per year with COA included. (please do not stop laughing). U of P was recently featured on PBS' Frontline investigation on student loan scam abuse.

If ever there was any more clear evidence that the powers that be at the ABA do not care and/or will not do anything to address the law school scam situation, this turkey takes the cake.

I think this pretty much signals the end of whatever shred of dignity the legal education system in this country had. Sorry to say that Arnie Duncan didn't have the testicular fortitude to stand up to the lobbies and the future 99% employment figures Phoenix will soon be pumping out.

The U. of Phoenix is worse the Brooklyn Law School, Seton Hall or any other TTT. A for profit school is actually more honest about its intention that these supposedly "not for profit" dipoma mills like BLS and SHU which are fully of profiteering shysters.

The non-profit/profit law school dichotomy is a false one. Law schools are notorious cash cows that's why so many institions have or desire one.

I agree they should block extending unemployment benefits. Maybe only then will this stupid fuck you zombies elected loweer corporate taxes. We are now the highest corporate tax rate in the world. Ain't no one hiring anyone.

Welcome to our hell Monica R. Tanzey! At least you can rest assured you're not alone.

This will all definitely end in disaster unless something is done. BigLaw, the ABA, and law schools are way too dumb to see what's coming and in the end they will all suffer as we all will. The answer is really simple really:

1) Get the ABA to wake up and STOP APPROVING NEW LAW SCHOOLS!

2) CLOSE A MINIMUM OF 40 GARBAGE LAW SCHOOLS (DIPLOMA MILLS)!

3) SCHOOLS MUST BE REQUIRED TO STOP LYING ABOUT THEIR EMPLOYMENT STATISTICS!

When you need tax help and fair representation, where should you turn?The professionals( Tallahassee tax attorneys ) at Tallahassee Tax Lawyers are the best ones to call upon when tax issues have bogged you down. You will get the help you need with any tax problem, and we will give you fair and thorough representation throughout any issue with the Internal Revenue Service or a state taxing authority.

Students should be given loans for their studies in college, and loaning companies should present fair terms in the agreements, especially when it comes to the interest. One more thing students should also be aware of is their rights to student loans.

Considering the economic downturn over the last several years, combined with escalating student loan debts, a significant concern is the potential for increased loan defaults as we have seen the national cohort default rate increase recently.